The Health of the Economy is Tied to the Building Sector

Slideshow →

A Building Sector in Crisis

The rippling effects of sagging U.S. building construction go far beyond rising foreclosures and stagnant housing starts. When the Building Sector contracts, every other U.S. sector and industry suffers [1]. Virtually every U.S. industry – from steel, concrete, insulation, caulking, mechanical and electrical equipment, solar systems, glass, wood, metals, tile, fabrics, and paint to architecture, planning, design, engineering, banking, development, real estate, manufacturing, construction, wholesale, retail and distribution – depends on the demand for products and services generated by the construction industry. Yet, this industry is mired in the worst downward economic spiral since the Great Depression.

The depth of the construction industry crisis is sobering. The industry has lost over two million jobs since August 2007. Construction unemployment remains well above the national average. In 2008, most construction job losses were concentrated in the residential building sector. By early 2009, commercial (non-residential) and heavy construction job losses began to surpass residential job losses, and by May 2009, most construction job losses were occurring in the commercial building sector.

When the Building Sector contracts it not only affects the entire U.S. industrial base, but also negatively affects the local and federal tax base; leading to large deficits and local and state government spending cuts.

Current Situation: The Imminent Commercial Real Estate Meltdown

The most pressing economic crisis facing the country today is now occurring in the Commercial Real Estate (CRE) market. High rates of unemployment have led to a decrease in demand for office, retail, manufacturing, warehouse, and hotel space. Office vacancy rates nationwide are reaching a staggering 18 percent. Industrial vacancy rates are nearing 15 percent. As a result, rents are going down, making it more difficult for borrowers to pay their loans.

CRE transactions have dropped 90% since 2007. Between now and 2014, $1.4 trillion in CRE loans will be coming due, half of which are currently underwater and many more near underwater and not able to refinance. Many of these loans originated in the commercial boom years of 2005 through 2007 when property values were exceptionally high. The impact of this situation on small regional and community banks, which have high concentrations of commercial real estate loans, could be devastating, since these banks face as much as $300 billion in losses. Without swift intervention, the CRE crisis will cripple the economic recovery, raise unemployment, and lead to scores of small business and community bank failures.

See the Solution.